BRIC outshines emerging markets

NEW YORK: Funds investing in Brazil, Russia, India and China (BRIC) are outperforming emerging markets by combining the world's two most populous nations with two countries feeding their expansion.

``The four countries have high economic growth and there seems to be virtuous cycle between them,'' said Grant Yun Cheng, who co-manages the $491m dit-BRIC Stars fund in Frankfurt. Demand for commodities and building materials in China and India is injecting money into the economies of oil-producing Russia and natural resources-rich Brazil, he said.

Money managers from HSBC Holdings Plc to Franklin Resources Inc are capitalising on the groundswell of interest in so-called BRIC funds. The four countries' stock markets have posted some of the best gains in the world in the past 12 months.

Of the 30 BRIC-related equity funds tracked by Bloomberg data, 75% were started in the past year. Assets in 12 of the biggest have more than doubled to $10 bn in 2006, according to Boston-based Emerging Portfolio Fund Research.

The Morgan Stanley Capital International BRIC Index has gained 25% this year. That compares with an 8.9% advance in the broader MSCI Emerging Markets Index of 25 developing countries.

Among BRIC funds, with track records from the start of the year, London-based Schroders Plc's BRIC fund and the HSBC Holdings Plc's BRIC Freestyle Fund have been the best performers, returning 26.7% and 24.4% in 2006.

Both funds held Russia's OAO Gazprom, the world's largest natural gas producer, and Petroleo Brasileiro SA, Brazil's state-controlled oil company, among their top three holdings at the end of June. Those shares have gained 61% and 31% in dollar terms this year amid rising energy prices.

Gains in the four BRIC markets are being driven by China and India, the fastest-growing economies of the world's 20 largest. Their expansion is in turn driving demand for commodities such as iron ore from Brazil and oil from Russia.

``China needs a lot of raw materials, which Brazil and Russia provide,'' said Cheng, whose Deutscher Investment Trust is a unit of Allianz Global Investors AG; he started the fund last September. ``India is also moving to more infrastructure spending, so it will also need a lot of commodity investment.''

The acronym BRIC was coined by Jim O'Neill, chief economist at Goldman Sachs Group, in a report published in November 2001 titled ``Building Better Global Economic BRICs.'' He said the four countries would join the US and Japan as the biggest economies in the world by 2050, eclipsing most of today's developed nations.

BRIC markets have proved to be more resilient than other developing countries since a global sell-off in May and June caused the MSCI Emerging Markets Index to lose almost a quarter its value. All four markets have gained more than the MSCI index since their troughs in mid-June, with the dollar-denominated Russia Trading System Index jumping 33%.

China's economy has grown 10-fold since then-leader Deng Xiaoping began loosening regulations in 1978, overtaking the UK as the world's fourth-biggest in 2005. China grew at the fastest pace in a decade in the second quarter, and will grow 10.4% this year, according to the median forecast of 26 economists surveyed by Bloomberg News last month.

India's $775 billion economy grew 9.3% from a year earlier in the quarter ended March 31. Growth for the financial year was 8.4%, the fastest pace after China among the world's 20 biggest economies.